In 2008, the nation was plunged into the worst financial crisis since the Great Depression, and in response, lawmakers established the Consumer Financial Protection Bureau. Since the CFPB’s creation, opponents of financial regulation have sought to weaken its ability to protect the interests of consumers through both legislation and litigation. This White Paper provides background on the CFPB and then explains why the legal arguments against its constitutionality are all without merit.

Summary

In 2008, the nation was plunged into the worst financial crisis since the Great Depression. After months of evaluating the roots of this crisis and assessing the types of reforms needed, lawmakers concluded that a major culprit was the failure of a fragmented and unaccountable consumer financial protection regime to safeguard homeowners from reckless financial products. To remedy this failure, Congress established a new and consolidated Consumer Financial Protection Bureau (“CFPB” or “Bureau”) that would have the independence, resources, and mission focus needed to prevent a recurrence of those problems and respond to the challenges of an evolving financial marketplace.

Since the CFPB’s creation, opponents of financial regulation have sought to weaken the Bureau’s ability to protect the interests of consumers, pursuing their agenda through both legislation and litigation. In particular, financial institutions have challenged the Bureau’s constitutionality on the ground that its structure and authorities violate the Constitution’s separation of powers. This White Paper provides background on the CFPB and then explains why the arguments against its constitutionality are all without merit.

Challenges to the CFPB based on the constitutional separation of powers have focused on two features of the Bureau: its leadership by a single Director (rather than a multimember commission) who is removable by the President only for cause, and its source of independent funding outside of the congressional appropriations process. Objections to these two features of the CFPB are meritless. The Constitution does not require independent regulatory agencies to be led by multimember bodies, nor does it require that the directors of such agencies be removable by the President at will. Likewise, nothing in the Constitution requires agencies to be funded by annual congressional appropriations. In fact, many agencies (especially financial regulators) have one or both of the features to which opponents of the CFPB object.

Regarding the fact that the CFPB Director is removable only for cause, the Supreme Court established decades ago that limiting the President’s removal power in this way does not violate the separation of powers. In doing so, the Court upheld a statutory removal provision that is identical to the one governing the Director of the CFPB. This precedent has been reaffirmed by the Supreme Court many times, including as recently as six years ago.

Bureau opponents insist, however, that this precedent applies only to agencies that are led by multimember commissions. But they offer no basis for this distinction. Neither the Constitution’s text and history, nor the Supreme Court’s precedents, nor the longstanding principles on which those precedents rest lend any support to the notion that removal limits are permissible only for multimember bodies.

The Bureau’s detractors also argue that its funding, which comes from the earnings of the Federal Reserve System instead of congressional appropriations, violates the separation of powers. But they fail to offer a credible reason why. Independent funding is the norm, rather than the exception, for financial regulatory agencies, and nothing in the Constitution prohibits it. Moreover, Congress retains full power to alter the Bureau’s funding structure at any time.

Finally, Bureau opponents argue that when independent funding and a single Director removable for cause are combined in the CFPB—which they assert has sweeping, unprecedented authority—the result is an entity not subject to any form of political accountability, in violation of the Constitution. This too is wrong. The Bureau’s powers are similar to those of other financial regulatory agencies, and the Bureau is fully accountable to the President, Congress, and the courts. Nothing about the CFPB upsets the balance among the three coordinate branches or impairs the ability of any branch to carry out its functions. In the end, whether the arguments of the Bureau’s opponents are considered individually or together, the result is the same: the Consumer Financial Protection Bureau is plainly constitutional.